The vacancy rate in Calgary’s downtown skyscrapers inched up higher in the most recent quarter, but Avison Young’s latest report on the city’s commercial real estate market says there are reasons for optimism, including a more rapid return to the workplace than in other Canadian cities.
The real estate firm’s report puts the downtown vacancy rate at 29.9 per cent in the third quarter of the year, up from 29.2 per cent in the previous quarter. Five downtown buildings are completely empty. The vacancy rate across the entire city is 26.1 per cent.
Calgary’s downtown office vacancy rate is the highest in North America as the city continues to struggle from an economic downturn that began after oil prices crashed in late 2014. Tens of thousands of workers lost their jobs, which hollowed out downtown offices even before the pandemic, and the vacancy rate has become a barometer for the state of the city’s economy.
Susan Thompson, research manager at Avison Young in Calgary, said that while the vacancy rate is higher, it was the smallest quarterly increase over the course of the pandemic – a sign, she said, that the downtown office market is stabilizing.
“We’re definitely seeing an increase in activity,” she said in an interview.
Prospective tenants “are starting to go on more tours. They’re getting more interest in exploring space options for their companies.”
Ms. Thompson said there are other reasons to be optimistic.
The unemployment rate in Calgary was 8.9 per cent in September, the lowest since it peaked at 15.7 per cent in June, 2020.
Avison Young uses location data from mobile phones to track people’s movement downtown. Foot traffic was higher in August, 2021, than at any other point since the pandemic started, though still far below prepandemic levels.
Ms. Thompson said that foot traffic data show that workers are returning to downtown Calgary faster than in other North American cities. She said the oil industry appears to be bringing workers back into the office more quickly than other sectors, such as tech, where employers appear more comfortable with work-from-home arrangements.
There are fewer subleases on the market than earlier in Calgary’s economic downturn. About 23 per cent of vacant space on the market is available as subleases, compared with 45 per cent in 2016, which Ms. Thompson said gives landlords more control over their space and a greater ability to negotiate directly with new tenants to fill it.
And vacancy in higher quality AA Class buildings is significantly lower than the rest of downtown. The vacancy rate in those buildings is 7.7 per cent; in contrast, the vacancy rate on the west end of downtown, where most buildings are older B or C Class buildings, is about 50 per cent.
Ms. Thompson said the downtown vacancy numbers have been following Avison Young’s optimistic projections.
She said there are a few things that could be helping make that happen. For example, as part of Calgary’s Greater Downtown Plan, the city is considering applications from landlords and developers to convert underused office towers into rental apartment buildings. She said that alone could remove 600,000 square feet from the office market, out of about 14 million square feet currently sitting empty.
But still, even Avison Young’s most optimistic projection has the downtown vacancy rate at 26 per cent in three years, which would still be higher than before the pandemic and significantly higher than other major Canadian cities. In contrast, the firm’s most recent report on Toronto put the city’s downtown vacancy rate at 7.6 per cent.
“With the unprecedented vacancy situation Calgary is in, no one solution is going to address it and it’s going to be a slow process,” she said.
“But we are definitely starting to see actions taking place behind the scenes and the momentum starting to build toward turning the tide on this.”
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